Beyond the rationality of economic man, toward the true rationality of human man

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Abstract

This paper reviews arguments concerning the deficiencies of economic rationality as a normative concept and develops an improved normative conception. Economists need to utilize a true rationality conception that includes not only instrumental rationality but rationality of ends. A decision cannot be truly rational unless a person is choosing what is really best considering (1) the long-term consequences of the individual's behavior, (2) the person's sense of morality, and (3) what gives the person real happiness. If true preferences represent what is really right for a person, then the ultimate rationality, true rationality, means choosing in line with true preferences.

Introduction

The concept of rationality used by economists is a central, defining feature of economics today. It is important as both a positive and normative concept. Unfortunately, it is a problematic feature in both senses. A very large number of articles and books have been written about the deficiencies of rationality as a positive or descriptive concept, but relatively few have dealt with the deficiencies of economic rationality as a normative concept. This paper proposes (1) to review and synthesize the most cogent and telling of the arguments in the latter literature and (2) based on these to develop a more appropriate normative conception of rationality. It is anticipated that this alternative conception of rationality, true rationality, will be especially appropriate for a humanistic economics. Hopefully, it will be a concept that can better serve as a guide to resource allocation in order that the socio-economy can attain its true potential human well-being. This alternative conception should also make more sense from philosophical, spiritual, and religious perspectives (particularly perspectives embodying transcendent values) than the economists’ conception.

Section snippets

The essence of rationality

To begin, rationality is defined in a very general way, a way that all economists, mainstream and heterodox, might be able to agree upon. Accordingly, rationality involves the appropriate use of reason to make the best possible choices considering what is under the circumstances really in the best interests of the choosing agent (see Rescher, 1988, chapter 1 for similar definitions). Wide agreement on this definition is possible precisely because it does not distinguish between the two main

Instrumental rationality

The instrumental conception of rationality is widely understood to derive from the thinking of the eighteenth century Scottish philosopher, David Hume (Sugden, 1991, pp. 752–753). Hume considered a person's ends, one's motivating passions, to operate outside the rule of reason (Rescher, 1988, pp. 93–94). In other words, people's desires or aversions, their appetites, are whatever they are, and people do not try to apply reason to assess their appropriateness. Reason is only applied to choose

Rationality of ends

Over the years, some philosophers and even a few economists (and other social scientists) have questioned the mainstream economics view that rationality is entirely an instrumental conception. Frank H. Knight, a leading economist in the early twentieth century, for example, thought the economists’ conception of rationality was too narrow: “Living intelligently [rationally] includes more than the intelligent use of means in realizing ends; it is fully as important to select the ends

A framework for analyzing rational behavior

What economists need is a way to integrate the insights above with economic logic concerning rational decision making. Thus, the purpose of this paper is a synthetic one, i.e., it is to develop a conceptual framework that enables a clear link between the noneconomic insights and economic concepts, thereby helping economists and other social scientists attain a proper understanding of normative rationality. Three types of preferences are at the heart of our analytical framework: actual

Merit goods and true rationality

Our analysis of true rationality implies that with respect to certain goods there is a likelihood that people will fail to make decisions that fully reflect what is really in their best interests. This brings to mind the concept of merit goods. According to Richard Musgrave, a merit good is a good “that the appropriate authorities are justified in judging that the level of consumption as attained through the market is too low and that the authorities are therefore justified in interfering with

Toward better understanding of and realizing true rationality

To more fully appreciate the concepts of true rationality and true preferences, it is important to consider writings that either have anticipated one or the other of these concepts or that have developed the same or similar ideas in other words. It is hoped that reviewing these writings will produce greater insight into the nature of true rationality and the factors that enhance or retard it. Although there are rich bodies of literature (notably philosophical, spiritual, religious) on this

Socio-economy wide comparisons: efficiency

If all decision-making agents in the socio-economy are economically rational, carefully calculating marginal benefits and costs, then as we know, resource allocation ought to be Pareto efficient (assuming no externalities or other violations of the assumptions of the competitive market ideal). In this case, benefits and costs would be calculated and decisions made taking into account only purely utilitarian considerations based on whatever people's wants and desires are. This is familiar

Implications for economics and policy

If the idea of true preferences is valid, and if on the average people's actual preferences are not close to their true preferences, and if the highest long-run well-being can only come from satisfying true preferences, it follows that people's actual preferences are on the average inferior, and people's well-being could be improved by helping them change their actual preferences in the direction of their true preferences.10

Conclusion

Is it rational to choose whatever good or service best satisfies one's existing preferences? If so, when a dog selects one dog food over another, the dog is being rational, even if the food chosen is known to cause sickness and death in dogs. For this and many other reasons outlined in this article, the normative concept of economic rationality used in mainstream economics today is deficient. This article argues that the appropriate normative concept of rationality is true rationality. To help

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